People purchase life insurance for a variety of reasons. Some people buy it to protect their families in the event of their untimely death. Others use it as a way to save money for retirement. Life insurance can also be used as a tool to help pay for long-term care expenses.
There are two primary types of life insurance: term life insurance and permanent life insurance.
Term Life Insurance
Term life insurance is the most basic type of life insurance. It provides coverage for a set period of time, typically 10, 15, 20, 30 or 40 years. If the insured dies during the term of the policy, the death benefit will be paid to the beneficiaries. If the insured does not die during the term, the policy will expire and no death benefit will be paid. Although just like your cell phone life insurance has changed over the years. Now some companies offer living benefits. What are living benefits? It’s when you are able to get tax free access to the death benefit for chronic, critical or terminal diagnosis.
Permanent Life Insurance
Permanent life insurance provides coverage for the insured’s entire life. The death benefit is paid to the beneficiaries regardless of when the insured dies. Permanent life insurance has a cash value component, which grow tax free over time and can be accessed by the policyholder through loans or withdrawals.Two popular types of permanent life insurance are whole life insurance and indexed universal life insurance.
Indexed Universal Life Insurance
Indexed universal life insurance (IUL) is a type of permanent life insurance that offers both death benefit protection and cash value accumulation. The cash value of an indexed universal life policy grows based on the performance of a stock market index, such as the S&P 500. This allows the policyholder to participate in the upside potential of the stock market while still being shielded from downside risk. IUL policies have many tax advantages, as the cash value grows tax-deferred, and the death benefit may be tax-free for beneficiaries. Policy holders may also borrow against the cash value of the policy without tax penalties.
Whole Life Insurance
Whole life insurance provides permanent death benefit coverage for the life of the insured. It guarantees that beneficiaries will be paid a death benefit when the insured passes. This policy also offers a savings component, also known as “cash value” similar to an indexed universal life policy. In a whole life policy the beneficiary will only receive either the cash value or death benefit when the insured passes.
Contact Eden Accounting today for a personalized approach to meet your life insurance needs.